Transnational Corporation Research Paper

Globalization is triumphantly treading the globe, continuously creating new opportunities for interconnection of national economies. The picture looming ahead for many analysts consists in the demise of the nation-state and emergence of a global government. Concerning the growth of economic ties, Transnational Corporations are named as the main driving forces behind globalization. The process is deplored by many, and as a result TNCs get the blame for inequalities exacerbated, quality of life deteriorating in many parts of the world, and populations put at the mercy of foreign capitalists. It is also stated that they have a devastating effect on democracy in the developing nations. This paper will examine the arguments in favor of TNCs’ responsibility for undermining state democracy and human rights and explore whether their activities are subversive or conducive to democracy.

1. Neo-Marxist View of Globalization

Most of the anti-globalist rhetoric is underpinned by the Neo-Marxist view of the process that takes off from where Marx stopped. The basic distinction between bourgeoisie is preserved and adapted to the new conditions. Hardt & Negri (2000) in their new interpretation of the process in the book Empire view the bourgeois class “as a placeless, faceless network of transnational corporations, international organisations, and the nation-states that benefit from them” (Hale & Slaughter 2005). These bourgeois agents retain power, further stifling the voices of the working people.

The TNCs are accused of acting through international organisations. The list of the agents of international capitalism includes the World Bank, the International Monetary Fund, the World Trade Organisation, as well as regional trade agreements such as GATT. The policies of these organisations are “frequently seen as interfering with the sovereignty and autonomy of states and promoting a global corporate agenda” (Goodhart 2001:527). The global trade rules set by the WTO are seen as a route to take power from the local people to ensure the flows of capital conducted by large corporations.

Nation-states of nations that entered the organisation have submitted a large portion of their power to the TNCs and therefore can no longer serve as a vehicle for conveying the opinion of the people that live on their territories. The negative impact on democracy is perceived to go beyond that of separate nations: in fact, it is about “private capital versus working people and small businesses around the world” (Danaher & Mark 2003).

These arguments parallel the ideas of many thinkers. In particular, Max Weber in his Essays on Sociology also condemned capitalism for its seeming incompatibility with human rights and democracy. He stated that “freedom and democracy are only possible where the resolute will of a nation not to allow itself to be ruled like sheep is permanently alive” (Weber 1991:71). Since TNCs, pushing for globalisation and increase in power of corporate institutions are generally believed to undermine the power of the nation-state, their negative impact on democracy can be deduced from such line of thinking.

2. Evidence for the Impact of Transnationals

Analyzing the above arguments, one can indeed find evidence in favor of international organisations restricting democracy. Especially financial global institutions like the IMF or the World Bank influence political decision-making in states, requiring, for instance, implementation of Structural Adjustment Policies (SAPs) that have been blamed for perpetuating poverty.

A case of such influence can be seen in South Korea when in the wake of the 1997 election, “both candidates for the Presidency were requested by the IMF to sign a confidential declaration to abide by the conditions of its proposed financial rescue package, irrespective of the election outcome” (McGrew). This case demonstrates the impact of the international organisations that allegedly reflect the interests of TNCs.

On the other hand, in Jamaica, for instance, the government is consistently democratic, partly because of the reinforcement from international institutions. The political leaders “receive resources from overseas and can then distribute those proceeds to its clients, thus reproducing domestic political support for the regime in power” (Eddie 1994:25-26). In general, if one looks at the nations of the Caribbean, for instance, the pattern of connection between democracy and economic situation seems evident. The least developed Haiti that remains on the sidelines of globalization suffers from economic and environmental problems caused by dictatorial rule and frequent government changes. On the contrary, Jamaica and the Dominican Republic enjoy a higher level of development and a democratic government.

Actions of TNCs through international organization can be taken to be instances of indirect influence through go-betweens. Talking of attitudes demonstrated by corporations through their overt, direction actions, in general TNCs are believed in many cases to show two lines of behavior and attitude toward the state of democracy in developing nations they operate in: passive observance of human rights situation underpinned by the belief that it is a matter for the state and government, or, occasionally, active cooperation with reactionary forces. The first is explained by the fact that an economic entity acts to ensure its own economic self-interest and thus has little interest beyond securing access to the desired resource and securing a “docile and compliant workforce” (Forsythe 2001:5). The second type of attitude is manifested by the ITT in Chile and United Fruit in Guatemala for the removal of human rights protectors in power, respectively Allende and Albenz (Forsythe 2001:6). Shell, a global oil extracting company, has cooperated with the dictatorial Abacha government in Nigeria that guaranteed the Western company access to oil wells. These instances demonstrate that TNCs can often exert dangerous influence on the development of fragile democracies.

3. TNCs and Democratic Values

While it is true that TNCs can be interested in restricting the power of the people to control their own governments, it has also been argued that they can export democratic values and even labor rights. Professor Spar, for example, puts this ability in dependence on the profile of the corporations (Forsythe 2001:7). Extractive companies that do not require an especially skilled and motivated labor force tend to be restrictive to human rights, whereas consumer goods companies, manufacturing, service and information businesses have a better record. Their active interest in human rights preservation is explained by willing to have a supportive and educated staff; on the other hand, they shun consumer protests over human rights violations that can damage their image and sales. Brown, Deardorff & Stern (2002) also find a difference between industries that are in need of skilled labor such as electronics, automotive industry that require skills rather than cheap labor, and labor-intensive production exemplified by footwear and apparel industries. In fact, most anti-sweatshop campaigns targeted especially companies working in labor-intensive business.

It also matters who is the target audience for the company’s goods. The consumer pressure in developed countries to implement responsible practices has resulted in the adoption of business practices codes in a number of TNCs including GAP, Starbucks, Nike, Toys R Us, Avon, Reebok and others (Forsythe 2001:7). Speaking of political impact, the establishment of a dictatorial regime in Burma forced many corporations to move out of the nation to escape criticism, with the list including Levi Strauss, Macy’s, Liz Claiborne, Eddie Bauer, Heineken (Forsythe 2001:7).

Researchers have also found that the presence of international business and amount of FDI flows is “positively correlated with the practice of civil and political rights in developing countries” (Forsythe 2001:7). These numbers are also positively correlated with GNP numbers, quality of life, access to education and economic indicators. The amount of FDI tends to be higher in nations that have a lower incidence of violation of rights to association, positively correlates with unionization rates and a civil liberties index, and negatively correlated with child labor including children of 10-15 years of age (Brown, Deardorff & Stern 2002:26). These measures, in turn, are positively correlated with compensation levels, evidence which suggests that TNCs do have a positive effect on the development of countries that host them. The higher wages in TNCs’ branches in developing nations as compared to standards rates for domestic employment can be explained by the oligopoly rent captured by these companies because of their brand image and publicity (Brown, Deardorff & Stern 2002:34).
Overall, it can be stated that TNCs on their own cannot be expected to forward democracy and human rights. However, with regulation from local governments and pressure from consumers and global community, their power can be harnessed to benefit the people of the nations in which they work.

4. Democracy Can Be Forwarded by Transnational Social Movements

In general, globalization that is spearheaded by TNCs’ activities can give rise to a new way to express social concerns on a global scale. Historically, the voice of the people came to be heard via a broad range of social movements that advocated labor rights, human rights, and in general upheld the democratic principles and the needs of the common people. Globalization driven by TNCs at the forefront has led to the collapse of the historical Left movements based in concrete nation-states. However, it also gave rise to the emergence of the new transnational social movements that are better equipped to carry the democratic message in modern conditions.

An example of such new movements is the environmental movement that, although fragmented into different organisations and demonstrating a diffuse structure, can effectively advocate the interests of the people. Environmentalists have succeeded in influencing political agenda and “political campaigns list environmental issues among their most important objectives” (Bonanno: 40). Moreover, this movement has succeeded in influencing corporations themselves as more and more business entities are hard-pressed to address environmental issues in their agenda, marketing to consumers with a high degree of environmental awareness.

5. Nation-States or Network?

The main argument for the harmful effect of transnational corporations on democracy rests on the assumption that they, through international institutions, subvert the power of the nation-state. The nation-state is held to be the only viable vehicle for expressing the voice of the people. Its decline is taken to be a sign that people are submitted to the power of the TNCs which they are likely to utilize to decrease human rights.

In the international political discourse, however, there is a growing understanding that modern reality requires the re-definition of the nation-state and its powers and forms. In fact, evidence suggests that modern states survive by forming alliances with each other, be it regional alliances like the European Union or trade or military unions on the ideological or economic basis. In this way, states already form networks. The future model of governance may be based on “a pluralist web of overlapping institutions and actors who, while linked, maintain a fundamental degree of autonomy” (Hale & Slaughter 2005). In this network, both national states and individual regions will have a voice in expressing their concerns whereas part of the decision-making is relegated to a superior, regional or global level. However, “the trick, of course, is to figure out exactly how such a web should work”, namely the type of institutions required, ways to include opinions of broad masses of citizenry, and the like (Hale & Slaughter 2005). Such a system, if well designed, will reflect the interests of transnationals alongside with interests of citizens that support them with their labor.

The situation can be compared with the creation of nation-states in Europe in the period following the fragmentation of the Middle Ages. This process, too, met with significant resistance from local lords unwilling to release power. However, with time the nation-state proved a more effective governance power than segmentation into small boroughs and can hardly be blamed for subversion of democracy. In the same way, creation of transnational structures in itself is unlikely to be a challenge to human rights and democracy, although any structure can be used to violate people’s rights.

Such transnational structures that could provide adequate regulation for global economic activities for transnational corporations are advocated within the framework of the liberal-reformist position and political cosmopolitanism. Such scholars as Hutchings, Burnheim, Connolly, Patamoki and Walker have discussed a radical democratic pluralist model of governance that would promote “empowerment of individuals and communities in the context of world of globalizing power structures” (McGrew). The emergence of such cosmopolitan democracy would effectively complement the process of globalization that remains largely driven by economic factors and thus puts in the limelight the harmful effects of TNCs’ activities.

Therefore, if TNCs acting through international institutions undermine the authority of nation-states, it cannot be automatically concluded that they also undermine democracy. When accusing them of undermining democracy, one should in the first place ask what kind of democracy is meant. Munck (2002) argues that globalization indeed threatens “the traditional form of national territorial sovereignty” and “problematizes is the elective affinity between liberal democracy and the sovereign nation state of the Westphalian order”. Although liberal democratic nation-states have traditionally been taken to be the pillars and guarantors of democracy, this link may no longer be valid. In fact, democracy of a different, global order is emerging. The foundation for such democracy may in fact be created by TNCs that integrate nations with their activities.

Broadbent (2003) suggests that the WTO that has been criticized as a pillar of international global order imposed by TNCs can be effectively used to forward labor rights. He states that “WTO Article XVI:4 compels all signatory governments to comply with the agreement… by obliging governments to ensure that domestic law is consistent with WTO laws regulations and administrative procedures” (Broadbent 2003). This provision can be used to instigate governments to comply with WTO requirements if they are changed to promote labor rights. The same is true for the UN’s Universal Declaration that also includes provisions related to rights of workers. Effectively using the power of international institutions, it is possible to implement greater controls over the state of human rights throughout the world.

Conclusion

Transnational Corporations are often accused of being the main culprits of disempowering people, in developed and developing nations alike, by grabbing power out of the hands of local governments. Investigation of their influence on democratic processes in developing nations shows that their activities can at times promote un-democratic governments. However, in many cases TNCs abstain from interference in internal affairs or even cease operations in nations with dictatorial regimes as in the case of Burma. The behavior depends on the nature of business and policies of a specific corporation including concern about a socially responsible image.

The indirect impact of TNCs through international organisations seems more problematic since entry to an international union presupposes that a certain degree of authority will shift from a local government to this institution. Despite the questionable input of international organisations in the promotion of human rights, the proliferation of international cooperations also creates prerequisites for the development of transnational democracy that will take democratic development to a qualitatively new level. Expressing of concerns that unite people across countries through transnational social movements is reality of today. Creation of transnational democratic structure that will effectively promote the needs of people throughout the globe remains the challenge of tomorrow.

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